To put it bluntly, the discipline of economics has yet to get over its childish passion for mathematics and for purely theoretical and often highly ideological speculation, at the expense of historical research and collaboration with the other social sciences.
The quote is, of course, from Piketty’s Capital in the 21st Century. Judging by Noah Smith’s recent blog entry, there is still progress to be made.
Smith observes that the performance of DSGE models is dependably poor in predicting future macroeconomic outcomes?precisely the task for which they are widely deployed. Critics of DSGE are however dismissed because?in a nutshell?there’s nothing better out there.
This argument is deficient in two respects. First, there is a self-evident flaw in a belief that, despite overwhelming and damning evidence that a particular tool is faulty?and dangerously so?that tool should not be abandoned because there is no obvious replacement.
The second deficiency relates…
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